Economists are going to have to approach things a bit differently if they want to stay relevant in the Trump age. Political economy research is going to become more important. Some humility wouldn’t hurt. And they should look someplace other than the federal government to test their ideas.
This is what I took away from this past weekend’s American Economic Association’s annual conference, where I heard a panel with five Nobel-winning economists on the topic of “Where is the world economy headed?” The consensus was that Donald Trump’s policies may put the US economy in danger: “There is a broad consensus that the kind of policies that our president-elect has proposed are among the polices that will not work,” said Joseph Stiglitz, summing up the views of the panel that included his fellow Columbia University professor Edmund Phelps and Yale University’s Robert Shiller.
I predict that Trump’s policies will be mostly random and will reverse themselves frequently. But the spectacle of all those distinguished economists sitting on a single stage saying the same things drove home the even bigger point of economy’s growing powerlessness in the age of Trump.
A whole lot of this field is about technocracy. Economists do research to figure out how the world works. They then recommend these policies to politicians and bureaucrats, either directly (as economic advisers), or indirectly through think tanks and economic writers. The leaders—the president, Congress, the Federal Reserve—then implement the policies as best they can. Legendary economist Hal Varian summed it up when he said that “economics is a policy science”.
What use at all is a policy science when the people who make policy don’t listen to the science? Trump’s few academic economist advisers—such as University of California-Irvine’s Peter Navarro—are, to put it mildly, non-traditional. He’s also largely disconnected from the web of think tanks, such as the American Enterprise Institute and Heritage Foundation, which have traditionally advised Republican presidents on economic policy.
And even if he had economists on staff, Trump doesn’t seem inclined to listen to them. He picked Navarro because Navarro’s ideas on trade—basically, that China is screwing the US—align closely with what Trump already believed. Even if Navarro turned around tomorrow and told Trump to reconsider his stance towards China, it’s unlikely Trump would listen. Or if he did, he might then change his mind again the next day—the president-elect has a reputation for listening to the last person he talked to.
But the real issue runs even deeper than one man’s personality. One lesson of Trump’s election is that technocracy—the idea that wise, expert leaders should steer policy for the good of all—is out of favour. Economists may still be the toast of the American and British elite, but that elite has been sidelined by a populist wave.
Free trade, although not the most important issue facing the country, was a hugely symbolic battle. The elite, supported by the vast majority of the economic profession, took the virtues of free trade as a given; the general public disagreed vehemently with the expert consensus. The eventual victory of the populists has caused many economists to question whether the public will listen to them again in their lifetimes. The Wall Street Journal had a good quote: “The economic elite did many things to undermine their credibility while people’s economic fortunes were taking a turn for the worse,” said . But a road map for regaining trust is elusive. “I used to think facts and analysis will ultimately carry the day but now I’m not quite sure.”
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So plenty of economists must be asking themselves: If no one with power is listening, what’s the use of writing papers? It’s like doing medical research in a world without doctors or hospitals. Economic writers, like me, are also questioning our utility.
One answer is just to keep chugging along, doing good research and writing about it, in the hopes that someday the regime will change, and America will go back to listening to the experts. But I think there’s more that can be done.
First, economists should think about political economy. Which ideas can be implemented, and which can’t? How does expert consensus affect policy? A related point is to think more about distribution—in the real world, people care a lot about how the economic pie is divided.
Second, economists can ponder where they went wrong. Research is now showing that the distributional costs of trade are often much more dramatic than the overall gains. Why was no one noticing this in 2001, when China joined the World Trade Organization? Why did macroeconomists pay so little attention to finance before the crisis of 2008? Why did so many financial economists support deregulation of the industry?
And third, economists should look beyond the federal government. States and cities are experimenting with policies like minimum wages, tax cuts, renewable-energy subsidies, land-use reforms and many more. Lots of important regulation is at the state level, as are many industrial policies. By shifting their focus to state and local government, economists who study policy issues can ensure their continued relevance during the long winter of Trump’s populist reign. Bloomberg
Noah Smith is a Bloomberg View columnist.